Marinol Gallardo Quintilla
Graduate School, University of Santo Tomas
January, 2014
Budget Officer Court of Appeals Manila Philippines
Part Time Lecturer University of Santo Tomas, Manila Philippines


Bank closures are not unique to the Philippines. They happen globally. Legal grounds for closing a bank differ among countries due to varying laws, culture,customs and beliefs. But there adverse effects common to all such closures:economic and financial crises which include loss of employment, disruptions in the payment and settlement system, loss of public confidence in the stability of the banking system, bank runs, systemic risks and losses imposed on uninsured depositors and other creditors. The researchers’ goals are minimization of creditors' losses imposed on the uninsured depositors and creditors and expeditious recoveries of their claims. Indicators of bank insolvency and their impact on the recoveries of creditors’ claims against closed banks under PDIC liquidation have been examined. Using the Pearson correlational analysis, findings reveal significant statistical link between the liabilities and realizable assets to recoveries of 577 closed banks as of yearend 2011 consisting of 508 rural banks, 67 thrift banks and 2 commercial banks under PDIC receivership and liquidation. Finding also show that high debt ratios of 386 or 67% of the 577 closed banks indicated that their liabilities exceed the value of their realizable assets. Thus, these banks cannot pay all their debts; thereby, imposing losses on uninsured depositors and other creditors. By applying the banks waited for 19 years (median) before the Liquidation Court approved the final project of distribution which grants authority to the liquidator to settle creditors' claims either in cash or in kind. On the other hand, 50% of the claimants in 296 closed banks under PDIC liquidation without Project of Distribution (POD) or with project of distribution still pending approval by the Liquidation Court have already waited for 2 years (median) as of December 31, 2011 (cut-off date of this paper) but the date for claims payment is nowhere in sight. Therefore, they still have to wait for an indefinite period of time for the court-approved project of distribution before expecting notice of payment or non-payment. To conclude, the researcher recommends that bank regulators should jointly prepare draft bills to be presented to the Senate and House of Representatives for reforms in the traditional bank closure practices and in the implementation of the liquidation processes that are detrimental to the best interest of uninsured depositors, creditors and the general public.



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